Analysts Upbeat on Kenneth Cole’s Offer to Take Firm Private

Kenneth Cole Productions Inc.’s stock saw a sharp spike in trading volume Friday morning after the firm’s chairman and chief creative officer, Kenneth Cole, offered to take the company private for $15 per share in cash.

The share price also surged almost 20 percent to about $15.65 — above Cole’s offer price, which would value the total equity of the company at about $280 million.

Analysts said investors were cheered because going private is a good thing for the brand.

“They needed to do this to take the brand back to where it [should be]. Reporting to Wall Street every quarter was hurting them,” said Sterne Agee analyst Sam Poser.

Scott Krasik, an analyst at BB&T Capital Markets, agreed: “You have to really question why they need to be a public company. If you don’t need capital and you’re a controlled company, combined with very little institutional investor interest, [delisting] makes sense,” he told FN.

Cole currently holds about 47 percent of the firm’s outstanding common stock, which represents about 89 percent of the voting power. After he issued his offer, the board of directors announced it had formed a special committee of independent directors to consider the proposal and, if it deems appropriate, to solicit and consider any alternative transactions.

But Cole made it clear in his offer letter that he has “no interest in a disposition or sale of his interest in the company, nor would it be his intention, in his capacity as a stockholder, to vote in favor of any alternative sale, merger or similar transaction involving the company.”

Steven Marotta, analyst at CL King & Associates, noted, “Current investors bore the burden of cost-cutting measures over the past 18 months without reaping the expected benefits in coming years. [But] additional bidders in the process are likely to be non-existent as Kenneth’s desire to work for somebody is notoriously low.”

Cole explained in his letter, “Recent market challenges have created a sharply competitive landscape, and I believe it is now more important than ever to embrace a more entrepreneurial perspective where we are all incentivized to grow and develop our company’s products, brand and business with a longer-term perspective. I believe it is increasingly difficult to develop this type of culture in a public company context, where the public markets are increasingly focused on short-term results. I am convinced that private ownership is in the best interests of the business and the organization and that this proposal is in the best interests of the shareholders.”

“In his mind, they’re executing the strategy they want right now,” noted Krasik. “But maybe they want to do things like exit some distribution they’re currently in, and that’s easier to do outside of public scrutiny.”

Cole also said he expects the management team, led by CEO Paul Blum, to remain in place and that he anticipates “maintaining the company’s valuable employee base.”

Jeff Van Sinderen, analyst at B. Riley & Co., told FN, “There’s a good possibility of [the deal] actually happening. Kenneth sees the opportunity of rebuilding the product line and enhancing the brand’s positioning and getting the company back to growth, and since Paul’s come back on board, that’s certainly changed the nature of the company and strategy.”

Separately, on Friday, two securities law firms launched investigations into whether Kenneth Cole Productions’ board of directors breached their fiduciary duty in considering the potential sale of the company to Kenneth Cole.

The firms of Tripp Levy and Bernstein Liebhard are concerned that Cole’s $15 offer is an unfair price since analysts have projected KCP is worth at least $17 per share.

“They’re not going to go out with the highest number possible, but the offer price will probably creep up. They will be under pressure to do so,” said Van Sinderen.